Senate adopts their own tax relief proposal
A month after the Mississippi House advanced a plan to eliminate the income tax, the Mississippi Senate has passed a smaller package of tax cuts. Senate Bill 3164, which cleared the Senate today, will phase out the 4 percent tax bracket, lower grocery taxes to 5 percent, offer a $3.50-$5 break on car tags, and provide a one-time rebate of up to $1,000.
“In a time of unprecedented inflation impacting our state’s families and unprecedented stockpiles of taxpayer dollars sitting in state government, we can act bolder, eliminate the income tax, and restore to Mississippians the money they earned so they can take care of their families and help grow our economy,” said Empower President Russ Latino. “The state is on pace for the second billion-dollar surplus in as many years and is conservatively projected to have over $4.4 billion in reserves by next year. While we appreciate the Senate’s offered plan, there is an opportunity to go further to improve the jobs and economic environment for Mississippians.”
Last year, Empower performed a deep dive into the dynamic impact of eliminating the income tax in Mississippi, with Ph.D. economist Jorge Barro finding that if done properly, the elimination could lead to dramatic increases in productivity, jobs, wages, and in-migration. This year, Empower has offered detailed breakdowns of both the House and Senate plans’ design and impact, as well as an analysis of the state’s capacity to handle an income tax elimination. We’ve also suggested an alternative path to the plans currently before the Senate and House.
Under the Senate plan that passed, Mississippi taxpayers would receive a one-time rebate between $100 and $1,000, with the amount based on a percentage of a taxpayer’s 2021 tax liability, and the 4 percent income tax bracket would be phased out over the next four years. The 4 percent bracket currently applies to taxable income between $5,000 and $10,000, for a maximum tax liability of $200. This means that under the Senate plan, Mississippians would experience up to $1,050 in tax savings in the first year, including the one-time rebate. Thereafter, taxpayers would experience $100 in tax savings in the second year, $150 tax savings in the third year, and $200 tax savings in the fourth year and every year to follow.
After year four of the Senate plan, Mississippians would not pay income taxes on the first $10,000 of income. The Senate plan would keep the 5 percent bracket intact on all income over $10,000, essentially a flat tax. However, the tax base will be narrowed with fewer payers. The House plan, by contrast, would eliminate income taxes for all taxable income up to $40,000 for a single filer and all taxable income up to $80,000 for a married filer in year 1, including available standard deductions. This represents an immediate $1,585 tax savings for the single filer and $3,520 savings for the married filer to continue in perpetuity.
Thereafter, the House plan would gradually phase out the remaining income tax on single earners making over $40,000 and married owners making over $80,000 using growth in revenue to government over 1.5 percent to reduce the tax burden. To partially fund the larger initial cut, the House plan proposed a 1.5 percentage point increase in the general sales tax, bringing Mississippi’s rate to 8.5 percent. The Senate plan does not include an offset to the general sales tax.
Like the House plan, the Senate plan also provides relief on the grocery tax and car tags. The House plan would phase in a grocery tax reduction to 4 percent. The Senate plan would immediately lower the grocery tax to 5 percent. The House plan would provide a 50 percent car tag tax credit for the total cost of the tag. The Senate plan would eliminate the state car tag fee, which represents between $3.50-$5 in savings.
Both chambers have until March 15 to act on plans adopted by the opposite chamber.
